For an entire economy, allocative efficiency requires that
A) MRP is equated for all factors of production.
B) goods are allocated equitably across markets.
C) MC = P for all goods.
D) price is greater than marginal cost for all goods.
E) price equals average cost for all goods.

Question

Quizplus · Accepted Answer

Allocative efficiency requires that resources are allocated in a way that results in the highest possible level of satisfaction to consumers, which occurs when price (P) equals marginal cost (MC) for all goods. This ensures that the production of each good generates benefits to consumers that are at least as great as the costs of producing it, and that no additional benefits could be gained by switching resources from one good to another. Therefore, only choice C satisfies this requirement.

For an Entire Economy, Allocative Efficiency Requires That